Whitbread plc (LON:WTB), the owner of Costa Coffee and Premier Inn hotels, said third quarter sales growth slowed in the UK, reflecting tough market conditions.
UK like-for-like (LFL) sales in the 13 weeks to November 30 rose 0.3%, compared to a 1.7% increase the same period a year earlier.
READ: Former ITV boss Adam Crozier to replace Whitbread chairman Richard Baker
Premier Inn LFL sales climbed 0.5% while Costa LFL sales fell 0.1%.
Challenging retail market
The retail market has come under pressure as consumers cut back on spending due to weak wage growth and rising inflation.
“We do expect the tough UK high street environment and inflation in our sector to continue to pose challenges in the year ahead,” said Whitbread chief executive Alison Brittain.
“However, we have good momentum in the delivery of our plan to enhance our UK market leadership positions, create an international business of scale in Germany, China and Costa Express, and develop a more efficient infrastructure.”
In an effort to lift sales, Whitbread said it was working to improve its customer offering with newer blends of coffee and food options.
Shares rose 2.9% to 3,958p in morning trading.
Costa spin-off speculation lifts shares
Analysts said the share price has reacted to positively to reports that activist investor Sachem Head has asked Whitbread to consider a break up of Costa from its hotels and restaurant businesses.
READ: Barclays Capital asks: What if Whitbread decides to sell Costa Coffee and its real estate?
The US hedge fund disclosed a 3.4% stake in Whitbread in December, fuelling speculation of a push for a break-up. The news sent ts shares up more than 7% on the day.
"The decline in (Costa) LFL sales in Q3 and the pressure on the UK high street may indeed make this the time for Whitbread to at least look at its options," said Neil Wilson, senior market analyst at ETX Capital.
"Break up rumours could support the share price even in the face of weaker LFL sales growth.”